A project is going to cost $2.5 million for an initial investment in a machine. The machine will depreciate straight line to zero within the five-year project life with no salvage value. It is projected that the project will generate a sales of 500 units per year at a $4,000 unit price. The annual variable cost per unit is $60, and the fixed cost is 20,000 per year. The tax rate is 20% and the required return is 2%.

a. The sales, variable cost, price and fixed cost is accurate to be within ± 5%, what is the NPV under the base-case, worst-case, and best-case scenarios?

Answer rating: 100% (QA)

To calculate the NPV under different scenarios we need to first calculate the cash flows for each year of the project Lets start with the basecase sce... View the full answer